Silicon Valley Bank (SVB) and Signature Bank are the two U.S. banks that failed in the last few weeks. Were the depositors at risk? Normally, if deposits were $250,000 or less per depositor, per insured bank, an independent government agency called the Federal Deposit Insurance Corporation ensures that depositors will promptly get all of their insured money back. The FDIC does this by either finding another bank to purchase the failed bank or by drawing on FDIC reserves that are accumulated by charging banks an insurance fee. Deposits including checking accounts, Negotiable Order of Withdrawal (NOW) accounts, savings accounts, Money Market Deposit Accounts (MMDAs), time deposits such as certificates of deposit (CDs), cashier’s checks, money orders and other official items issued by a bank are covered up to the $250,000 limit. This insurance does not cover stock investments, bond investments, mutual funds, crypto assets, life insurance policies, annuities, municipal securities, safe deposit boxes or their contents and U.S. Treasury bills, bonds or notes – even if they were purchased from the failed bank. (Note that U.S. Treasury bills, bonds or notes are backed by the federal government.) Couples should be aware that joint accounts are insured up to $500,000. Also, deposits at different banks each have the $250,000 insurance limit. So, if you have a lot of money in banks, it does make sense to spread it around.
For these two failures, the FDIC stepped in and not only agreed to repay the insured funds, but to also repay the eligible uninsured funds. In addition, they established a loan facility to supply capital to any bank that has a liquidity problem (as they might if there was a run on its deposits).
Most of Signature Bank was quickly acquired by Flagstar Bank – a subsidiary of New York Community Bancorp. A bit later, North Carolina-based First Citizens Bank acquired about $72 billion of SVB assets (at a $16.5 billion discount) leaving about $90 billion in receivership. Between these acquisitions and the FDIC intervention, all of the accounts listed above will be fully protected.
So, the use of banks within the insured limits continues to be a very safe investment. Indeed, the FDIC proudly reports that “since the founding of the Federal Deposit Insurance Corporation in 1933 no depositor has lost a penny of FDIC-insured funds.”
You might be wondering about your deposits and investments in credit unions and brokerage firms. They have FDIC-like protection as well. Credit unions offer protection through the National Credit Union Administration. Brokerage firms have insurance through the nonprofit Securities Investor Protection Corporation (SIPC).
We use TD Ameritrade as our brokerage house. So, if you are a Guidepost customer, you may be interested to know that in addition to SIPC insurance, you are protected by something called the excess SPIC program. This provides protection up to $152 million per customer – of which up to $2 million may be in cash. (It’s worth noting that the excess insurance coverage is limited to $500 million per brokerage house.)
If you would like to further discuss insurance on your investments, or any other financial matter, we can set up a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.